Ethiopian troops and Somali government forces seized control of a key Somali city on Saturday after battling Islamist rebels on the outskirts, leaving at least 18 dead, sources said.

The city, Beledweyne, lies some 30 kilometres (18 miles) from the Ethiopian border.

"The fighting started this morning after our forces supported by the Ethiopian military attacked the enemy's positions on the outskirts of Beledweyne," Bare Abdulahi, a Somali government security official, said from the scene.

"They lost in the battle and we have penetrated into their barracks killing nearly 20 of their fighters before taking control of the city. The Somali government forces alone entered the city and they are securing it now," he added.

"We have counted around 18 dead bodies, most of them the combatants, some of them have died outside the city and others are lying in the streets of Beledweyne," Mohamed Moalim Osmail, an elder in the city, confirmed to AFP.

"I saw some Somali government troops accompanied by armed trucks belonging to the Ethiopian forces, they have entered the city and the fighting has stopped now", Abdirahman Isa, another witness said.

Ï have seen nearly 20 dead bodies strewn in the streets and outside the town, most of them are combatants but a few civilians were also caught in the crossfire," he added.

The Al-Qaeda-linked Shebab rebel movement denied having been defeated in the city.

"The enemy tried to destroy the frontline barracks of the mujahideen fighters but they lost in the battle, we killed many of them and the mujahideen fighters have retreated back from some positions in order to reorganise their strategy", Abu Musab told reporters in Mogadishu.

Residents said that several hundred Ethiopian troops on November 19 crossed into Somalia's central Galgudud and Hiran regions, but Addis Ababa dismissed the reports as "absolutely not true."